How might marrying a non-US citizen affect your taxes? What are some of the hidden issues that the IRS, California, and other state tax agencies may raise in an audit?
Key Takeaways: The Ways in Which Marrying a Non-US Citizen Affect Your Taxes:
- The United States taxes the worldwide income of its citizens and residents.
- The present FBAR reporting threshold is triggered when the aggregate total of all Foreign Financial Accounts (FFIs) or offshore bank or investment accounts exceeds $10,000 at any point in the calendar year, even if only for a single day.
- US taxpayers who marry a non-US citizen should consult with an experienced international tax attorney to answer all questions, even those as simple as whether to opt for “married filing jointly” or a separate option.
Account Balance Threshold for FinCEN FBAR Required Reporting
The United States is one of the few countries that taxes the worldwide income of its residents and citizens. US residents, citizens, and expatriate taxpayers who exceed specific income thresholds must report all foreign bank accounts, investments, assets, and associated income, and complete the FinCEN “Report of Foreign Bank and Financial Accounts” (FBAR). Many US taxpayers, non-citizen residents, and expats do not understand the reporting requirements and tax issues associated with offshore investments or foreign corporate ownership.
The present threshold for required FBAR reporting occurs when the aggregated value of all qualifying accounts with a single or multiple “Foreign Financial Institutions” (FFIs) or offshore accounts (including those in which the taxpayer holds either a beneficial interest or signature authority) exceeds $10,000, even during a single day of the calendar year.
In addition, the IRS Form 8938 – The Statement of Specified Foreign Financial Assets, is required when US taxpayers with “specified foreign financial assets” exceed established thresholds. Generally speaking, a resident single, head of household, or married filing separately should investigate this form if the value of these assets exceeds $50,000 on the last day of the tax year or exceeds $75,000 at any point in the tax year. If these taxpayers live abroad, the thresholds increase to $100,000 / $150,000, respectively.
For those who are wondering how might marrying a non-US citizen affect your taxes, the IRS Form 8938 thresholds for married filing jointly increase to $100,000 for specified assets held on the last day of the tax year, or if these assets exceed $150,000 at any point in the year. If you intend to live abroad with your new spouse, the Form 8938 thresholds are $400,000+ on the last day of the tax year, or $600,000 at any point during the tax year.
Here are a few additional things you need to know if you’re wondering how might marrying a non-US citizen affect your taxes:
- Even if you are not listed as an account holder on a foreign bank account, if you have signatory authority or a financial interest in any offshore account or asset, you are required to list it. As a spouse, it is prudent to disclose the account on an FBAR even if you did not financially or directly benefit from the asset under many circumstances.
- One critical decision you face as a couple is whether to file jointly or file as “married filing separately.” This decision is quite complex and will require the insight of our experienced international tax attorneys. Filing jointly exposes you to taxation on your spouse’s worldwide income; however, the joint return also provides deduction advantages and a significantly lower tax rate. Filing separately is highly dependent upon your non-resident spouse’s income and whether or not any of that income is taxable in the US. Our analysis will review the tax advantages of your entire portfolio and the income and interests for both you and your non-resident spouse.
- If you have a child, filing as the “head of household” may restore some of the deduction advantages and provide a lower tax bracket than “married filing separately.”
International tax issues are quite complex, and the tax implications of marrying a non-US citizen can actually carry significant consequences. The failure to complete and file an FBAR could expose you to substantial financial penalties and interest, and even the potential for criminal tax evasion charges.
How might marrying a non-US citizen affect your taxes? We invite you to learn more about the integrated tax, legal, accounting, and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
We will work to protect your interests and help you understand all of the options available to you so that you and your new spouse are fully informed and prepared to make the decisions that are best for your unique circumstances.
